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HMRC internal manual

Company Taxation Manual

Particular Trades: mutual concerns: surplus from mutual trading not liable

The case of Ayrshire Employers’ Mutual Insurance Association Ltd v CIR (1946) 27TC331, confirmed that no tax had to be paid on surpluses from mutual trading. This is as a result of the principle that ‘a man cannot trade with himself’. If a group of people join together for a common purpose their transactions with the umbrella body can be seen as mutual if

  • the body’s legal framework passes the tests for mutuality, and
  • its transactions are with customers who are also members and accord with its legal framework.

If a body is incorporated, its legal framework will be set out in its constitutional documents (articles).  If not incorporated, in rules or whatever instrument sets out its constitution. There may also be agreements, contracts for services for example, which deal with transactions between the body and its members.

The bodies are only free from tax on their trading activities. They remain taxable on all other income and gains, including income from property or bank interest, without relief for management expenses.

There is no relief for losses made on mutual trading, and no capital allowances available on capital expenditure.

Insurance companies are dealt with at CTM40600.